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What Will it Take to Realize Pakistan’s Potential?

Good Afternoon. Assalam o Alaikum. Ladies and gentlemen, students and scholars. It is a great pleasure to be here today. This isn’t my first visit to Pakistan, but it is the first time that I have the opportunity to talk with educators and students. I am looking forward not only to share my views, but to hear from you as well, especially as you get ready to celebrate your country’s 69th independence day in less than two weeks.

Too often we frame Pakistan purely in form of challenges instead of opportunities. Today, I want to look at both. So the question I would like to pose to you is a simple one: What would it take for Pakistan to reach its full potential?

I hope you will agree with me that Pakistan can do much better, and should do much better.

For the past two decades, Pakistan’s growth rate has been only half that of India and China. If current trends continue, by 2050, India’s economy will be 40 times larger than Pakistan’s, and China’s economy a 100 times.

Pakistan has many assets, of which it can make better use – from its vast water and river endowment, to its coastline and cities, to its natural resources, including its mining potential. Pakistan’s growing middle class – an estimated 40 million people – represents a powerful engine for change, demanding both improved services and access to opportunities. They are also key to driving growth and creating jobs. The informal economy is also lively. Pakistan has made enormous progress in restoring macroeconomic stability, a key prerequisite for further economic success. The government deserves credit for it.

Last year, Pakistanis living and working abroad sent home $18 billion to support their families. This is the equivalent of 6.5 percent of the country’s GDP and the largest source of foreign income after exports. All of these factors can help Pakistan become economically resilient.

Pakistan should also be proud of its first peaceful transfer of power between two civilian governments, a truly encouraging sign of the country’s strengthening democracy. As a citizen of Indonesia, a country that once emerged from a dictatorship, I know that a peaceful change of government is a critical achievement. And Pakistan’s people have proved resilient in the face of extremist attacks, natural disasters like the 2005 earthquake, frequent floods, and extreme weather.

But I want to focus on what, in my view, are the two most important challenges, both obvious and urgent: To reach its full potential Pakistan needs to make better use of its people and its position in the neighborhood and the world.

Pakistan needs to ensure that its people can participate in the economy and benefit from economic gains. And it needs to integrate itself more, globally and regionally.

To achieve both, Pakistan must take bold steps

The Demographic Challenge.

Let me turn first to the people of Pakistan, this country’s most important asset.

As a result ofrapid population growth, Pakistan is now the 6th most populous country on Earth, with half the population younger than 24. At the present rate of growth, Pakistan’s population will exceed 300 million by 2050.

As a result of this population boom, 1.5 million young people reach working age each year. Will the private sector be able to provide the jobs they need and want? And will the youth have the skills to get good jobs?

Pakistan must do far better on education. Primary school net enrollment in Pakistan is about 57 percent and stagnant since 2009, well below other countries in the region. Enrollment drops by half in middle school, with much lower levels for girls and children from poor families. This is not a good foundation to build on.

It is not surprising, then, that Pakistan struggles to give all Pakistanis the opportunity to participate in building better lives for themselves. Only 25 percent of women work professionally, far below most developing countries where between 50 and 80 percent of women participate in the labor market.

The women and girls of Pakistan deserve better. Our research shows that girls with little or no education are far more likely to be married as children, suffer domestic violence, live in poverty, and have little say over household spending or their own health care compared to better-educated girls. This harms not only them, but also their children, their communities and their country’s economy.

You cannot expect a country to prosper when it is difficult for half of its citizens to work outside the home. Our groundbreaking World Development Report on Gender and Development shows that closing the gap between boys and girls and men and women is ultimately smart economics. Greater gender equality can enhance productivity, improve development outcomes for the next generation, and make institutions more representative.

Pakistan has moved forward to empower women. The Benazir Income Support Program, which is supported by the World Bank and which I had the privilege to visit yesterday, has provided millions of women with national ID cards and makes direct payments to them, strengthening their ability to take decisions on the use of money within households.

Reducing population growth while expanding opportunity can play an important economic role. Shifting from a family of six with one working adult to a family of four with two working adults triples income per person. And this enables young people to save and invest more, which increases productivity.

Other countries have made this transition. Just take my own country, Indonesia, the largest overwhelmingly Muslim democracy in the world. My own family is an example. I am the 7th of 10 children, which was not unusual for my parents’ generation – and I am sure it is not unusual for your parents’ generation either. My mother and father made sure that all of their children, boys and girls, were well educated. And as a result we all have fewer children – I have three – and we are better off today. Why not encourage the same trend across Pakistan?

Think of the dividends if more youths and more girls are better educated, if women can participate freely in the economy, and if households have fewer children and have the room to save and invest more.

There are many countries that have influenced their demographics to boost their development; Pakistan has a great opportunity to be one of them.

My country, Indonesia, is part of ASEAN, which was founded to bring peace and stability to the region, but has morphed into an economic community pursuing open trade, economic growth, and global integration. Overcoming initial skepticism, ASEAN is today one of the most dynamic regions in the world.

Pakistan has the good fortune to be positioned between two of the largest and fastest growing countries in the world, China and India, yet its trade with them is negligible. And Pakistan is losing ground. While its world market share has declined over the past 20 years, those of Malaysia, Mexico and Thailand have doubled, and China’s has tripled.

Discussion on the China-Pakistan economic corridor is very encouraging, but now must be implemented. And a parallel priority should be to normalize trade relations with India.

Pakistan is also well situated between Europe, the Middle East, Central Asia, East Asia and South Asia. Improving logistics, transport and customs can position Pakistan to play a major role in both national trade and transit trade.

A key benefit of opening links with neighbors is energy. As we all know, Pakistan has a large energy deficit. Energy trade with Central Asia and other countries in the neighborhood can be an important piece of the puzzle. Indeed, Pakistan has shown great leadership in moving forward on the CASA-1000 transmission line, which when built will connect Pakistan with Afghanistan, Tajikistan and Kyrgyz Republic. Of course, cross-border power trade requires a well-performing power sector domestically, with the incentives to boost energy production, minimize cost, and avoid losses.

One lesson of East Asia’s growing prosperity is that there can be strong benefits of increasing trade and investment links, but also that these gains can be uneven without a parallel internal effort to strengthen competitiveness. This is an urgent agenda for Pakistan. Pakistan currently ranks low on the World Bank’s 2015 Doing Business report at place 128. A better business environment, skills training, use of innovation, and cutting edge technology will be essential if Pakistan is to compete.

Attracting foreign investment and creating the conditions to transform the high savings rate of a young country into a high investment rate, will also require progress on governance. This includes ending special regimes and privileges, improving tax compliance, and reducing corruption.

As a former finance minister myself, I know that the logic of better policies often clashes with entrenched attitudes and real or perceived security concerns. Reform efforts can face the opposition of the elite who fear change threatens their own power and wealth. It takes tough decision making and staying power to succeed.

But change is possible. Pakistan has used innovative ways to tackle corruption and improve services that could be spread more widely. A “Citizen Feedback” model is being scaled up across Punjab, with support by the World Bank. Users of government services receive a phone call or text message asking them about their experience. So far, some 8 million citizens have been contacted, more than a million have provided feedback, and some 3,000 corrective actions have been taken. This approach is being replicated both within Pakistan and in other countries.

Closing: Be Bold, Be Focused

In closing, I want to acknowledge that the issues I have talked about are well known. So this forces the question - why hasn’t more been done? Major policy shifts require both boldness and staying power. They require building consensus across the political spectrum, and focusing on a few key items well over a long period.

There is no greater vulnerability than losing economic ground. People need hope and confidence that they can do as well as their neighbors. They need to feel that they can benefit from being part of this world. They need to own a stake in their own country’s economy and its social contract.

Now is the time for Pakistan to move forward. The ticking of the demographic time bomb is getting louder – the big question is whether it will lead to Pakistan becoming more or less productive and inclusive.

Every day the papers report new agreements by major powers in forging trade, energy and investment links –Pakistan can chose to participate and strengthen its partnerships or be left behind.

With determination Pakistan can take full advantage of its location, build dynamism into its economy, unleash the power of youth and women, and defuse the demographic time bomb.

As Quaid-i-Azam Mohammad Ali Jinnah said: “With faith, discipline, and selfless devotion to duty, there is nothing worthwhile that you cannot achieve.”

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